|
TAX
SYSTEM
INTRODUCTION
Summary
of Principal Iranian Taxes:
The
principal taxes in Iran are corporate and personal taxes on income.
The Iranian tax law is formulated in a way to encourage investments
in producing activities, mainly industry and mining. This is done
through low tax rates and various facilities and exemptions.
Iran
Tax Law on Profits and Other Income:
Profits
of Iranian corporate entities are subject to Corporate Income Tax
Law of The Direct Taxation Act of 1988 as amended on May 1992. Personal
profits and income are subject to the same act.
The
Ministry of Economic Affairs &
Finance and The Administration of Tax Law:
The
Ministry of Economic Affairs and Finance is the authority responsible
for tax arrangements, including such national taxes as customs and
excise duties. The assessment of taxable income is undertaken by
district tax auditors who are, as defined by the above mentioned
Act, competent authorities in respect to technical, specialized
and administrative tax issues.
CORPORATE
TAXES
The
taxable income of all corporate entities including local-foreign
joint ventures is assessed on the basis of their book accounts.
Resident
Companies:
Corporate
income tax is assessed by way of deducting a “corporate tax” of
10% of the taxable income. The remaining 90% of taxableincome is
taxedaccording to the progressive income tax table prescribedinthe
tax law:
| amount
of income Rls (mil) |
tax
rate (%) |
| up
to 1 |
12 |
| excess
1 up to 2 |
18 |
| excess
2 up to 4 |
25 |
| excess
4 up to 9 |
35 |
| excess
9 up to 25 |
40 |
| excess
25 up to 50 |
45 |
| excess
50 up to 100 |
50 |
| excess
100 up to 300 |
52 |
| excess
300 |
54 |
Non-Resident
Companies:
1.
In the case of non-resident companies operating in Iran, whose income
is earned through granting licences and concessions, the income
tax is assessed at rates ranging from 20% to 45% (the above mentioned
progressive table will apply to non-resident companies, on their
part of taxable income):
a)
in the case where a government company is the party receiving such
services from a non-resident company, 20% of the income earned within
a tax year is assessed as taxable income;
b)
in the case where the producing unit is located in a deprived or
semi deprived area, and provided that the activity in question is
not one of the tax exempted activities, 20% of the income earned
in a tax year is assessed as taxable income;
c)
in the case of othernon-residentcompanies45%of their income earned
in a tax year is assessed as taxable income:
2.
In the case of non-resident companies operating in Iran, whose income
is earned through providingtechnical training and assistance the
income is assessed at rates ranging from 20% to 45%(the fore- mentioned
progressive income tax table will apply on their part of taxable
income):
a)
in cases where a government company is the party making payment,
if at least 35% of the total income earned by a non-resident company
in a tax year is spent on salaries in Iran, 20% of the income earned
in a tax year is assessed as taxable income, otherwise a rate of
30% will be applied;
b)
in cases where at least 35% of the total income earned in a tax
year is spent on salaries in Iran, if the producing unit is located
in a deprived or semi deprived area, 20% of the total income earned
in a tax year is assessed as taxable income, otherwise a rate of
25% will be applied;
c)
in cases where the amount spent on salaries in Iran is less than
35% of the total income earned in a tax year, if the producing unit
is located in a deprived or semi deprived area, 35% of the income
is assessed as taxable income and in the case of producing units
located in other areas a rate of 40% will apply;
d)
in the case of other companies, if the minimum amount spent on salaries
in Iran is 35% of the total income earned in a tax year the taxable
income is assessed at 35%, otherwise a rate of 45% will apply.
3.
The taxable income of contractual activities of companies or non-resident
natural persons operating in Iran in relation to any operation concerning
construction, technical installations, transportation, preparation
of construction and installation drawings, surveying, supervising,
and technical calculations is assessed at a rate of 12% of their
annual income.
LOCAL
TAXES
Resident
and non-resident companies are subject to municipal tax at a rate
of 3% of their taxable income. Governmental companies and individuals’
salaries are an exception to this rule.
ALLOWABLE
DEDUCTIONS
General
Rule:
Allowable
deductions include all expenses directly connected with the conduct
of the business. These expenses mainly include: the price of purchased
goods or the price of consumer goods used as part of sold goods
and services, personnel expenses, rent, rented equipment, overhead
expenses, insurance premiums, expenses related to research, testing
and training, compensations, transportation, unsuccessful mining
exploitations, losses arising from exchange of currency, auditing
and administrative expenses and others.
Depreciation:
Generally,
all assets owned or used by a company for the purpose of its trade
are depreciable, whether tangible or intangible, new or used, if
their values necessarily diminish with time or by usage. Depreciation
is calculated on the first day the asset is made available for use
by the entity. Establishment expenses such as registration fees
and consultancy fees are depreciable upto a maximum period of 10
years. The depreciation rates are indicated in the depreciation
table which is prepared by the Ministry of Economic Affairs and
Finance and approved by the Council of Ministers. Depending on the
case, the calculation method could be straight-line or declining-balance.
Overall, expenses arising before the exploitation period is depreciable
upto a maximum period of ten years starting from the exploitation
date.
| Textile
& Clothing Ind. |
8
years |
| Plastic
Ind. |
10
years |
| Pharmaceutical,
Health & Medical Ind. |
8-10
years |
| Printing
& Copying & Graver Ind. |
10%
or 100% |
| Construction
Materials Ind. |
10
years |
| Glass
Ware Ind. |
8
or 10 |
| Cement
Ind. |
10
years |
| Food
& Beverage Ind. |
8
& 10 years |
| Chemical
Ind. |
6,8,10
or 15 years |
| Oil
& petrochemical Ind. |
10
years |
| Cellulose
& Wood Ind. |
10
or 12 years |
| Paper
& Pulp Ind. |
10
years |
| Electricity
& Electronic Ind. |
8
or 10 years |
| House
hold Ind. |
8
or 10 years |
| Lastic,
Tyre & Tube Ind. |
10
years |
| Leather
& Shoe Ind. |
10
years |
| Telecommunication
Ind. |
8
years |
| Steel
& Steel Mill Ind. |
8%-15% |
| Water
& Sewage Ind. |
10
or 15 years |
| Agriculture
& Animal Husbandry Ind. |
8
or 10 years or 30% |
| Tractor
& Combine Manufacturing Ind. |
10
years |
| Cinema
& Film Ind. |
10
years |
| Paint
& Adhesive Ind. |
10
years |
| Motor
Vehicles |
15%-35% |
| Road
& Construction Machinery |
25% |
| Tools
& Equipment |
100% |
| Mining
Machinery |
2-5
years |
| Workshop
Buildings & Factory, Resident Buildings |
7%-10% |
| Office
Equipment |
10
years |
Tax Free Reserves:
Contributions
made to pension schemes, the social security organization, insurance
companies and amounts up to 10% of annual payments saves for pension,
retirement, compensation given on dismissals and repurchasing of
employee services are considered tax free reserves provided that:
a)
such reserves are kept under the supervision of The Ministry of
Economic Affairs and Finance;
b)
such amounts are kept within a separate account with an Iranian
Bank, and
c)
the reserve is not used for purposes other than those prescribed
by the law.
TREATMENT
OF LOSSES
Expenses
related to compensation of damages incurred upon the assets and
activities of an entity are considered as allowable deductions provided
that:
a)
there is adequate evidence for its certainty;
b)
its nature and amount is specified and that;
c)
a second party is not liable for its compensation.
LIQUIDATION
AND DISSOLUTIONS
Income
arising during the course of liquidation and dissolution is subject
to corporate income tax at the normal rates, so that capital gains
arising on the disposal of fixed assets are added to taxable income
in the normal manner.
TAX
INCENTIVES
Government
incentives on taxation are available to investors as a range of
chronological exemptions on priority producing activities.
Housing
Projects:
The
income resulting from low and medium cost housing projects, subject
to the actual transfer of ownership, is fully tax exempted provided
that the criteria prescribed by The Ministry of Housing, and Economic
Affairs & Finance are met.
Agricultural
Activities:
The
income resulting from agricultural, husbandry, forestry, bee keeping
activities and the like are fully tax exempted.
Producing
and Mining Activities:
A.
The income earned by producing and mining units upon the permission
obtained from the relevant ministries and subject to prioritiesprescribed
as (1), (2) & (3) will enjoy tax exemption for 8, 6 and 4 years
respectively, provided that they are located outside the 120km radius
of Tehran and 50km radius of Isfahan. As an advantage to Iran-foreign
company joint ventures the minimum exemption period will be 6 years.
The list of priority projects is prepared and made available by
the government at the beginning of each 5 year development plan.
B.
Moreover, the producing and mining units located in less developed
areas enjoy an additional extension equal to half amount of the
exempt period. For example a priority 1 pharmaceutical project will
enjoy an 8 year tax exemption if located outside the 50km radius
of Isfahan, but if located in a less developed area such as Hashtroud
( a town in East Azerbaijan Province) it will enjoy (8-2=4 , 8+4=12)
a 12 year tax exemption period.
The
list of less developed areas is prepared by the Plan and Budget
Organization at the beginning of each 5 year development plan.
C.
20% of the declared taxable income resulting from producing, mining,
design and engineering, and design and assembly activities is tax
exempted provided that the related exploitation permit is acquired.
D.
The declared profit resulting from industrial and mining activities
appropriated for the renovation, expansion, completion of existing
industrial and mining units and/or being reserved for setting up
new industrial and mining units is tax exempt.
E.
100% of income resulting from the export of finished industrial
goods, agricultural products, and the related convertible &
supplementary industry products and 50% of income resulting from
export of other goods and commodities intended for promoting the
export of non-oil commodities are tax exempt. The list of tax exempt
products is suggested by the Ministries of Economic Affairs &
Finance, Commerce, Agriculture, Construction, and Industry during
each development plan and approved by the Council of Ministers.
F.
100% of income resulting from transited commodities through Iran
is tax exempt provided that no modification is made to the nature
of the commodity(s) in question.
G.
Companies with enlisted shares on the stock exchange are exempted
from 10% corporate income tax, provided that the related equity
transactions are registered by the stock exchange agents.
Moreover,
the dividend allocated or paid to shareholders is tax exempt provided
that:
a)
the share of the company are enlisted;
b)
the shareholder’ share of equity is less than 5%;
c)
the number of shareholders within the company is not less than 100.
H.
All tourist institution, agencies, hotels etc. which have obtained
the related permit from the Ministry of Culture and Islamic Guidance
are exempted from 50% of their annual tax (5 star hotel are an exception
to this rule).
TAX
YEAR
For
a corporate entity the tax year is defined as an Iranian year starting
from 1st of Farvardin (21st of March) and ending on the last day
of Island (20th of March). However, in the case of legal entities
with different financial year it is possible to assume their financial
year as the basis for tax assessment. The deadline for submitting
the returns and accounting records is 4 months after the end of
the financial year.
RETURNS,
ASSESSMENT & APPEALS, DELAYS
An
annual return must be filed, usually within four months of the close
of theprecedingfinancial year. On those returns which are submitted
and paid within the legal time an amount equal to 4% of the payable
tax is deducted as “good pay prize”. In cases where accounting records
have not been kept according to the prescribed regulations an estimated
assessment is issued. Inthiseven it is on the taxpayer to provide
sufficient proof that the amount so assessed is excessive. Assessments
are issued every year within 12 months after the deadline for submitting
returns. Objections to the assessment could be made within one month
after the receipt of the official notice. If the documents presented
by the taxpayer are accepted and approved, final agreement could
be reached with the head tax auditor. Otherwise, the case is referred
to The Initial Board of Tax Disputes for further investigation.
Taxpayers withapprovedaccountingrecordswho have, in three consecutive
years, paid their due tax without referring to The Initial Board
of Tax Disputes will enjoy a “good pay prize” on their credit tax
account equal to 5% of the total 3 year tax amount. In case the
taxpayer again has objection the case may be referred to the High
Council for Tax Affairs.
TAX
AUDITS
Tax
or fiscal audits of companies and businesses are undertaken periodically
by district tax auditors.
Sample
Calculation of Corporate Income Tax
Assumption:
Taxable
income of hypothetical producingjoint venturecompany is Rls.2,000,000,000
after allowabledeductions. The shareholding ratio is 40% foreign
and 60% Iranian.
25% of the income derived from exports (tax
exempted)
20% of the income reserved for expansion (tax
exempted)
Total
income
less
: 25% income from exports exempted : Rls. 2,000,000,000
less : 20% income for expansion exempted :
Rls. 500,000,000
Calculation
of foreign share according to income tax schedule
(Art.
131 amended)
|
Taxable
Income ( Rls.)
|
Tax
Rate (%)
|
Tax
Amount (Rls.)
|
| First
1,000,000 |
12 |
120,000 |
| Next
1,500,000 |
18 |
270,000 |
| Next
1,500,000 |
25 |
375,000 |
| Next
5,000,000 |
35 |
1,750,000 |
| Next
16,000,000 |
40 |
6,400,000 |
| Next
25,000,000 |
45 |
11,250,000 |
| Next
50,000,000 |
50 |
25,000,000 |
| Next
200,000,000 |
52 |
104,000,000 |
| Next
96,000,000 |
54 |
51,000,000 |
| 396,000,000 |
|
201,005,000 |
Tax
payable by the J.V.C.
| 10%
corporate tax |
Rls.
110,000,000 |
| Tax
on income of foreign Share |
Rls.
201,005,000 |
| Tax
on income of Iranian Share |
Rls.
307,925,000 |
| 3%
Municipal Surtax |
33,000,000 |
| Total |
Rls.
651,930,000 |
| |
|
| Total
tax % of total profit |
32.60% |
| Tax
payable by the foreign shareholder 10% corporate tax (40%
shares) |
Rls.
44,000,000 |
| Tax
on income |
Rls.
201,005,000 |
| 3%
Municipal surtax (40% shares) |
Rls.
13,000,000 |
| Tax
% of total foreign profit |
32.28% |
| Total
exemption |
Rls.
400,000,000
Rls. 900,000,000 |
| Taxable
income less exemptions |
Rls.
1,100,000,000 |
| Less:
10% corporate tax |
Rls.
110,000,000 |
| |
|
| Dividends
payable |
Rls.
990,000,000 |
| 40%
foreign shareholders |
Rls.
396,000,000 |
| 60%
Iranian shareholders |
Rls.
596,000,000 |
Priority
Activities Enjoying Tax Exemption in the Iranian Mainland
(Annex
to Article 132 of the Direct Taxation Act.)
Table
one (8 years Tax Exemption)
| No. |
ICGS
Code |
Field
of Activity |
| 1. |
3112-000 |
Dairy
Products* |
| 2 |
3116-000 |
Flour
Mill |
| 3 |
3411-000 |
Production
of Paper Pulp, Paper, Pasteboard Carton |
| 4 |
3420-000 |
Production
of Publishing & printing Related Industries |
| 5 |
3522-000 |
Pharmaceutical
Products |
| 6 |
3710-0001 |
|
| 7 |
3710-0002 |
Steel
& Iron Forging |
| 8 |
3710-0004 |
Steel
& Iron Casting |
| 9 |
3710-0013 |
Production
of Rails |
| 10 |
3710-0014 |
Production
of Steel Bars |
| 11 |
3710-0101 |
Production
of Cast Iron Ingots |
| 12 |
3710-0110 |
Production
of Steel and Ferro Alloys |
| 13 |
3710-0111 |
Production
of Ferro - Manganese |
| 14 |
3710-0112 |
Production
of Ferro - Silicon |
| 15 |
3710-0113 |
Production
of Ferro - Chromium |
| 16 |
3710-0114 |
Production
of Ferro - Nickel |
| 17 |
3710-0115 |
Production
of other Iron Alloys |
| 18 |
3710-0150 |
Iron
Powder |
| 19 |
3710-0151 |
Steel
Powder |
| 20 |
3710-0152 |
Production
of Sponge Iron |
| 21 |
3710-0153 |
Production
of Sponge Steel |
| 22 |
3710-0160 |
Iron
ore Pellets |
| 23 |
3710-0161 |
Steel
Pellets |
| 24 |
3710-0162 |
Production
of Iron Ingots |
| 25 |
3710-0163 |
Production
of Steel Ingots |
| 26 |
3710-0170 |
Production
of Large Iron Ingots |
| 27 |
3710-0171 |
Production
of Large Steel Ingots |
Industries
under this code, as below, do not enjoy Tax Exemption:
| Prod
of Ice Cream |
3112-0001 |
| Water-ice
Cream |
3112-0174 |
| Dif
Kinds of Ice Cream |
3112-1710 |
| Cacao
Milk Shake |
3112-0175 |
| Fruit
Ice Cream |
3112-0172 |
| Strawberry
Milk Shake |
3112-0176 |
| Chocolate
Ice Cream |
3112-0173 |
| Banana
Milk Shake |
3112-0177 |
| No. |
ICGS
Code |
Field
of Activity |
| 28 |
3710-0172 |
Production
of Small Iron Ingots |
| 29 |
3710-0173 |
Production
of Small Steel Ingots |
| 30 |
3710-0174 |
Production
of Iron Stabs |
| 31 |
3710-0175 |
Production
of Steel Slabs |
| 32 |
3720-0101 |
Copper
Matte |
| 33 |
3720-0104 |
Copper
for Refining |
| 34 |
3720-0105 |
Crude
Ingots |
| 35 |
3720-0106 |
Refined
Copper |
| 36 |
3720-0107 |
Copper
Ingots |
| 37 |
3814-0842 |
Hey
Shredding Machines |
| 38 |
3821-0000 |
Production
of Motors & Turbines |
| 39 |
3822-0000 |
Production
of Agricultural Equipments & Machinery |
| 40 |
3823-0000 |
Production
of Machinery for Wood & Metal Working |
| 41 |
3824-0000 |
Production
of other types of Machinery (than a.m. 40) |
| 42 |
3841-0000 |
Production
& Repair of Sea Vessels (Ship Building) |
| 43 |
3845-0000 |
Aircrafts
Manufacturing |
| 44 |
3511-0000 |
Production
of Basic Chemicals (other than Fertilizers) |
| 45 |
3512-0000 |
Production
of Fertilizers and Agricultural Insecticide |
| 46 |
3513-0001 |
Production
of Synthetic Fibers |
| 47 |
3551-0000 |
Production
of Tires & Tubes |
| 48 |
3851-0000 |
Production
of Professional, Scientific and Measurement Instrumentation
and Control Equipments |
| 49 |
3831-0000 |
Production
of Industrial Equipment |
| 50 |
3117-0001 |
Production
of Bakery Equipment |
| 51 |
3114-0000 |
Processing
& Preserving of Fish and other Sea Foods |
| 52 |
3115-0000 |
Production
of Edible Oils & Fats |
| 53 |
3117-0111 |
Baby
Foods - Special Products for Children |
| 54 |
3825-0000 |
Production
of Office & Computing Machinery |
| 55 |
3832-0000 |
Complete
Communication Machinery & Equipment |
| 56 |
3720-0005 |
Aluminum
Casting |
| 57 |
3720-0006 |
Brass
Casting |
| 58 |
3720-0007 |
Lead
Casting |
| 59 |
3720-0008 |
Copper
Casting |
| 60 |
3710-0009 |
Cast
Ironing |
| 61 |
2301-0000 |
Iron
Ore Mining |
| 62 |
2302-0000 |
Non-
Ferro Ores Mining |
| 63 |
2901-0130 |
Refractory |
| 64 |
2100-0000 |
Coal
Mining |
| 65 |
2901-0120 |
Kaolin |
Table
Two (6 Years Tax Exemption)
| No. |
ICGS
Code |
Field
of Activity |
| 1 |
3118-0000 |
Production
& Refining of Sugar |
| 2 |
3122-0000 |
Production
of Cattle & Poultry Food |
| 3 |
3211-0000 |
Textile
Industries |
| 4 |
3215-0000 |
Cord
Industry |
| 5 |
3231-0000 |
Leather
Industry |
| 6 |
3240-0000 |
Shoe
Production other than Plastic and Rubber one |
| 7 |
3311-0010 |
Production
of Chip- Board |
| 8 |
3513-0002 |
Production
of Solid & Liquid Resins |
| 9 |
3513-0003 |
Production
of PVC Materials |
| 10 |
3530-0000 |
Refined
Products |
| 11 |
3540-0000 |
Products
derived from Petroleum and Coal, Flues Tars, and Solvents |
| 12 |
3620-0000 |
Production
of Glass & Glass Products |
| 13 |
3692-0002 |
Production
of Cement |
| 14 |
3832-0000 |
Production
of Mass Media Equipment |
| 15 |
3833-0000 |
Production
of Household Electrical Devices |
| 16 |
3839-0000 |
Production
of other Electrical Equipments |
| 17 |
3852-0000 |
Production
of Visual & Photographic Equipment |
| 18 |
3710-0007 |
Metal
Roll Milling |
| 19 |
3710-0012 |
Production
of Iron Beams |
| 20 |
3710-0015 |
Production
of Angle Profiles |
| 21 |
3710-0016 |
Production
of Steel Tubes & Pipes |
| 22 |
3710-0100 |
Production
of Spiegel Cast Iron |
| 23 |
3710-0102 |
Production
of other Cast Irons |
| 24 |
3710-0140 |
Production
of Iron Granular |
| 25 |
3710-0141 |
Production
of Steel Granular |
| 26 |
3710-0176 |
Production
of Iron Steel & Iron Ingots |
| 27 |
3710-0180 |
Production
of Semi - Finished Iron Coil Products |
| 28 |
3710-0181 |
Production
of Semi - Finished Steel Coil Products |
| 29 |
3710-0190 |
Production
of Wide Iron Strips |
| 30 |
3710-0191 |
Production
of Wide Steel Steps |
| 31 |
3819-1562 |
Food
Aluminum Cans |
| 32 |
3809-0192 |
Iron
Cans |
| 33 |
3819-0030 |
Production
of Metal Cans |
| 34 |
3819-0032 |
Production
of Gas Cylinders |
| 35 |
3819-0594 |
Aleppo
Cans |
| 36 |
3819-0193 |
Steel
Cans |
| 37 |
3819-0195 |
1
Kg Cans |
| 38 |
3819-0196 |
1/2
Kg Cans |
| 39 |
3412-0006 |
Production
of Pasteboard Boxes |
| 40 |
3412-0155 |
Pasteboard
Cans |
| 41 |
3412-0156 |
Pasteboard
Barrels |
| 42 |
3819-1561 |
Special
Aluminum Cans for Poison Packaging/Transport |
| 43 |
3819-1563 |
Aluminum
Casks |
| 44 |
3819-1564 |
Aluminum
Barrels |
| 45 |
3819-1565 |
Aluminum
Large Cans |
| 46 |
3819-1566 |
Aluminum
Tubes |
| 47 |
3819-1580 |
Aluminum
Utensils for Compressed Gas |
| 48 |
3819-2140 |
Iron/Steel
Lids for food Utensils of Glass |
| 49 |
3819-2141 |
Iron/Steel
Lids for Glass Bottles of Non-Alcoholic Drinks |
| 50 |
3560-0569 |
Plastic
Pharmaceutical Utensils |
| 51 |
3412-0153 |
Pasteboard
Boxes |
| 52 |
3819-1691 |
Aluminum
Lid for Glass Bottles |
Table
Three
(
List of Producing Activities Excluded
from
the Third Priority of Tax Exemption
)
| No. |
ICGS
Code |
Field
of Activity |
| 1 |
3119-0002 |
Production
of Chewing - gum |
| 2 |
3112-0001 |
Production
of Ice Cream |
| 3 |
3116-0002 |
Rice
mill |
| 4 |
3134-0102 |
Production
of (Non - Alcoholic) Drinks |
| 5 |
3119-0239 |
Production
of any kind of Sweets |
| 6 |
3117-0125
3117-0115
3121-0007 |
Production
of any kind of Chips and salty Cracker and salty pea - shooter
and similar goods |
| 7 |
3523-0015 |
Production
of Cosmetics |
| 8 |
2523-0001
2523-0003 |
Production
of any kind of Air Fresheners |
| 9 |
3522-0007 |
Production
of Polish |
| 10 |
3529-0006 |
Production
of Candles |
| 11 |
3320-0100 |
Production
of Furniture |
| 12 |
3111-0431
3311-0441 |
Production
of Doors, Windows & Decorations |
| 13 |
3813-0121
3813-0010 |
Production
of any kind of Blinds |
| 14 |
3211-1541
3233-0010 |
Production
of Blind - Stripes & Safety Belts |
| 15 |
3411-0440 |
Production
of Wall - Papers & design |
| 16 |
Services |
Express
Washings |
| 17 |
Services |
Car
Washing & Transportation Means Services |
| 18 |
3901-0000 |
Adornments |
| 19 |
3902-0000 |
Music
Instruments |
| 20 |
3909-1280
3909-1283 |
Production
of and kind of Cigarette Lighters |
| 21 |
3819-0851
3620-0404 |
Production
of Luster |
| 22 |
3121-0004 |
Production
of Coffee & Cocoa |
| 23 |
3220-1000 |
Production
of Hats |
TAX
EXEMPTIONS
-
The first absolute transfer of inexpensive and moderately- priced
residential units which have been constructed within a period of
ten years since the approval of this law, according to the regulations
and prices determined by the Ministries of Housing and Urban planning,
and Economic Affairs and Finance, and transferred within a maximum
period of one year since the termination of the period for execution
of the project set by the Ministry of Housing and City planning
or municipalities as the case may be shall be exempt from property
transfer tax (Article 469).
-
Income earned from all agricultural activities, including animal
husbandry, fisheries and revival of forests and orchards are exempt
from taxation (Article 81).
-
Income earned by productive enterprises and mining units which have
obtained, since approval of this Law, an establishment license or
an identification card from the Ministry of Industry, Ministry of
Mines and Metals or the Ministry of Construction Jihad, as the case
may be, shall be exempt from taxation for a period of eight, six
or four years on a priority basis respectively from the commencement
date of operation.
If
such units are established or developed in deprived regions, an
equivalent of half the aforementioned period of tax exemptions shall
be added to their legal period of tax exemption, as the case may
be (Article 132).
-
Some 20% of taxable income earned from manufacturing, minerals and
engineering and assembly designing which have or will receive an
operating license from the said ministries, are exempt from taxation
(Note 4 to Article 132).
-
A portion of the income earned from industrial and mining activities
which companies deposit for reconstruction, expansion or completion
of their existing units or establishment of new industrial and mining
units, shall be exempt from taxation (Note 138).
-
100% of the income earned through the export of finished industrial
goods, and 50% of income gained from the export of other goods for
the purpose of increasing non-oil exports, shall be exempt from
taxation (Article 141)
-
100% of the income earned through the export of various goods which
have been or will be imported to Iran on transit without undergoing
any changes shall be exempt from taxation (Article 141-B)
Companies
whose shares, according to the relevant law, are offered on the
stock exchange market by the "According Board" shall be exempt from
10% corporation tax. The year will be omitted from the list of rates
on the stock exchange market provided that all transfer of shares
are carried out in the stock exchange market and registered in the
related ledgers.
F.A.Q
What are the various types of direct taxes?
According
to the Law of Direct Taxation, there is, in principle, a direct
tax on real property, undeveloped land, inheritance, income earned
from agricultural activities, salary, professions, corporation,
incidental income, and aggregate income acquired through various
sources. However, depending on specific cases, exemptions and discounts
are also available.
Who
is liable to pay taxes in Iran?
1.
Companies and all legal entities of Iranian nationality, with respect
to all income earned in Iran or abroad.
2. Every natural person of Iranian nationality
residing in Iran, with respect to income earned in Iran or abroad.
3. Every natural person of Iranian nationality
residing abroad, with respect to all income earned in Iran.
4. Any non-Iranian natural person or legal
entity with respect to income earned in Iran, as well as incom gathered
through the transfer of a license or right, provision of training
and technical assistance, and royalties on movie films.
What
type of tax facilities are provided to non-Iranians investing in
Iran?
According
to Article 3 of the Law Concerning Attraction and Protection of
Foreign Investment, all capital invested in Iran and the profits
that accrue therefrom, shall be subject to government protection.
All rights, tax exemptions, and facilities accorded to domestic
capital and private productive enterprises, are also available to
foreign capital and corporations. The foreigners may also enjoy
the advantages and facilities provided in the agreements on double
taxation avoidance concluded between Iran and their respective country.
What
are the most important tax exemptions?
Articles
132 to 146 of the Law of Direct Taxation specify the major tax exemptions
as follows: Income earned by productive enterprise and mining units
which have obtained an establishment license, or an identification
card from the Ministry of Industry, Ministry of Mines and Metals
or the Ministry of Jihad-e-Sazandegi (Construction Crusade), shall
be exempt from taxation for a period of eight, six,or four years
from the commencement date of their operation.
If
such units are developed in deprived regions of Iran, an equivalent
of half of the aforementioned periods of tax exemptions shall be
added to their legal period of tax exemption. In addition, 20 percent
of taxable income earned from manufacturing, mining, engineering
designing and assembly designing which have or will receive an operating
license from the said ministries, are exempt from taxation.
According
to Article 113 of the Third Five-Year Economic, Social and Cultural
Development Plan, export of all goods and services shall be exempt
from taxation.
Income
earned from all agricultural activities, farming, animal husbandry,
fisheries and the like are also exempt from taxation.In addition
to the above cases, exemptions and tax breaks have been outlined
in the Law of Direct Taxation and other related legislations for
some public utility institutions, as well as cultural, religious
and scientific foundations and activities.
How
are corporate taxes calculated?
An
initial 10 percent of the total taxable income of companies and
other legal entities, earned from various sources in Iran or abroad,
is deducted as a corporation tax, and the remainder is calculated
on the basis of rates set by Article 131 of the Law of Direct Taxation.
Non-commercial
Iranian legal entities as well as companies whose shares are offered
on the stock exchange market, shall be exempt from the 10 percent
corporation tax. The rates set by Article 131 which begin at 12
percent of the annual taxable income and rise to 54 percent, are
as follows:
| Up
to Rls. 1,000,000
annual
taxable income
|
|
12
% |
| Up
to Rls. 2,500,000
annual
taxable income
|
On
sums in excess of Rls. 1,000,000 |
18
% |
| Up
to Rls. 4,000,000
annual
taxable income
|
On
sums in excess of Rls. 2,500,000
|
25
% |
| Up
to Rls. 9,000,000
annual
taxable income
|
On
sums in excess of Rls. 4,000,000 |
35
% |
| Up
to Rls. 25,000,000
annual
taxable income
|
On
sums in excess of Rls. 9,000,000 |
40
% |
| Up
to Rls. 50,000,000
annual
taxable income
|
On
sums in excess of Rls. 25,000,000 |
45
% |
| Up
to Rls. 100,000,000
annual
taxable income
|
On
sums in excess of Rls. 50,000,000 |
50
% |
| Up
to Rls. 300,000,000
annual
taxable income
|
On
sums in excess of Rls. 100,000,000 |
52
% |
| |
On
sums in excess of Rls. 300,000,000 |
54
% |
What is the situation of foreign companies operating
in Iran, concerning taxes?
According
to Article 105 of the Law of Direct Taxation, foreign legal entities
must pay taxes on all taxable income earned through investments
in Iran or from direct or indirect (through agents, branch offices,
etc.(activities, assignment of their royalties or other rights,
or by providing training and technical assistance in Iran, at the
rates stated in Article 131.
Nevertheless,
by virtue of Article 113, direct taxes on income earned by foreign
airlines and shipping companies through transporting passengers
and cargo from Iran, is a flat rate of five percent on all sums
received from these activities in Iran, en route, or at the final
destination. Where the tax applying to the income of the Iranian
airlines and shipping companies in a foreign country exceeds five
percent of the fare collected, the Ministry of Economic Affairs
and Finance shall be required, upon notification by the Iranian
entity concerned, to increase the tax rate applying to the income
of the airline and shipping companies of the said country, to the
amount of tax collected in that country.
Are
there any other flat rate taxes?
Yes.
In accordance with Article 111, the taxable income of foreign contractors
in Iran, active in areas such as construction, technical installations,
transportation, designing plans for buildings and installations,
topographical surveying, drawing, supervision and technical calculations,
is a flat rate of 12 percent of their annual receipts in all instances.
With respect to contracting work performed by foreigners, when the
employers are ministries, governmental organizations and companies
or municipalities, the portion of the contract price utilized on
the purchase of supplies and equipment received from abroad, is
exempt from the payment of income tax.
As
stipulated by Article 107, the taxable income of foreign legal entities
earned by the assignment of their royalties and other rights, provision
of technical training and ceding of movie films (earned as price,
screening rights, or otherwise), depending on the case, shall be
from 20 to 90 percent of the total sum acquired by the entity within
one fiscal year. The rate set for each case is determined according
to the regulations approved by the Council of Ministers.
When
training and technical assistance is provided to governmental organizations,
the scale of payment on the taxable income of the entity concerned
may be set at lower than 20 percent. According to Article 109, foreign
insurance companies which earn their profit through reinsurance
may be subject to a tax at the rate of two percent of the premium
collected and the interest accrued from their deposits in Iran.
In
cases where Iranian insurance companies acting in the country of
citizenship of the foreign reinsurance company, are exempt from
payment of taxes on reinsurance activities, the foreign establishments
shall also be exempted from payment of taxes to the Iranian government.
What
type of tax incentives are there for investments and activities
in the Free Trade- Industrial Zones in Iran?
According
to Article 13 of the Law Concerning the Manner of Administering
the Free Trade-Industrial Zones of the Islamic Republic of Iran,
natural persons and legal entities economically active in such areas,
are exempt from payment of direct income tax for a period of 15
years, from the date of operation as stated in their license.
Are
there safeguards against being retaxed in the Law of Direct Taxation?
In
order to prevent double taxation, the government of Iran has signed
agreements with a number of states such as Germany and France. Also,
under the rules of reciprocity, airlines and shipping companies
of certain countries are exempt from taxation on income earned in
Iran by carrying passengers and cargo.
Are
the activities of agents of foreign companies in Iran also taxable?
Branches
and agencies of foreign companies which have been registered according
to the relevant regulations in Iran, and by virtue of their aticles
of association are not authorized to engage in profitable activities
but can do marketing and collect economic information, are not liable
to any taxation on the sums received from the mother company as
a revolving fund. However, if it is proven that the said branches
and agencies are engaged in profitable activities in Iran and are
acquiring an income therefrom, the sums earned shall be subject
to taxation according to the respective regulations.
What
regulations are taxes on salaries of foreigners working in Iran
subject to?
In
principle, issuance of a permit to leave Iran, or extension of a
residence permit or work permit for expatriates, except for those
who are exempt from the payment of taxes, shall be subject to the
submission of a tax clearance certificate on salary received. The
taxable income earned as salary, consists of the salary (wages,
or the basic salary) and fringe benefits related to the job, be
it temporary or permanent, after deducting exemptions determined
by the law, the value of non-pecuniary benefits such as housing,
private automobiles and the like, put at the disposal of salaried
individuals, are calculated and added to the salary paid to them.
|
